Non-Farm Payroll Report 101

Tomorrow, the US Department of Labor is set to announce its non-farm payroll report (May 3, 12:30pm GMT). Aside from the interest rate decisions to be made by the Fed and ECB, this is one of the biggest economic announcements for this week. But what is it exactly and why is it important to forex traders? Read on to find out.

What the Non-Farm Payroll Report Is

Also known as the NFP, this report is an important economic indicator for the US. This represents the overall number of paid workers in the country with the exception of government employees, employees of private households, employees of nonprofits, and of course, farm employees.

Why Is This Important for Traders

The release of the NFP report causes huge changes in forex rates, primarily because of the volatility of the NFP figures. There is therefore a big potential to earn a lot during this day's trading.

A rise in NFP figures is seen positive for the USD, while the opposite is true when the figures drop. March NFP figures were at 88K, and are seen to go up to 150K in April.

Strategising with the NFP Report

Of course, there is the temptation to enter into trade early on and take advantage of the report. However, this would expose you to a lot of risk especially since the report is known to cause massive volatility in the market. That way, getting into trade early would be a lot like gambling away a huge amount of your finances—exciting, but quite likely not worth it.

A better strategy then would be to let the initial volatility subside first before entering. It is because after this stage when the actual direction of the market becomes more apparent. You could then come in to make a profit out of the report, or minimise your losses, depending on your situation.

In other words, knowing the tendency of the market to be volatile after the NFP report lets you strategise beforehand and avoid letting your emotions get the better of you--a potentially risky move that would not do you much good in the long term.

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